The role of data in an organization is usually confined to purchases, website analytics and customer relations, but businesses may benefit from using data in employee evaluations.

When unemployment is at a low, business owners have more motivation than usual to make sure they hire, promote, retain and reward their most valuable employees. To do that in the most objective and accurate manner, business owners are recognizing the role of data in an organization to measure, track and analyze employee performance.

Fairness and consistency are primary objectives when it comes to evaluating employees, according to Cassie Whitlock, director of human resources at BambooHR, an online human resources information system for small to medium-size businesses based in Lindon, Utah.

“You can accomplish both goals when you have data behind the decision," Whitlock says.

The Role of Data in an Organization's Employee Evaluations

The role of data in an organization is to help make better decisions, and using the wrong data can lead to poor decisions.

If what drives desired performance isn't understood, a business may measure something that leads to worse performance.

“The art is finding the right data," Whitlock says. “If you look at the wrong things, you'll make wrong decisions."

With that in mind, step one in effectively increasing the role of data in an organization is deciding what to measure about each employee. Data on quantity and quality of product or service, absenteeism and ratings from formal manager performance evaluations are commonly used.

The exact measures vary by industry, company size and business goals and strategies. A good employee at one firm may not be a good employee at another. So the data used to measure employee performance also varies. At manufacturers, units and errors produced per shift may be the basic measure. Retailers may look at sales by individual employee to identity best and worst performers. Professional services firms tend to count someone's billable hours.

Different job descriptions may also demand different data.

“If you're hiring for management and you're hiring for hourly, that's going to be two different situations completely," observes Tina Hamilton, president of myHR Partner, an Allentown, Pennsylvania, human resources outsourcing firm.

Customers can contribute net promoter scores to evaluate employee performance. Customers are asked how likely on a scale of 1 to 10 they are to refer others to the company. Answers from 1 to 6 indicate customers likely to spread negative word of mouth. Scores 7 and 8 suggest satisfaction but not enthusiasm. Nine and 10 identify loyal fans.

Net promoter scores are hot right now, Hamilton says. One company she works with has a simplified net promoter score with a happy or sad face on the company's web site.

“All the client has to do is click it," she says. “So they're constantly keeping a running tab on how employees are doing."

Another popular data point are 360-degree assessments. These use anonymous feedback about individual employees from peers, supervisors and others. HR software can automate distributing surveys and gathering and tabulating answers, which typically include ratings on a scale.

Less common these days are forced rankings. A large conglomerate was widely known in the 1990s for ranking all employees annually. Then it would fire the bottom 10 percent and replace them with better workers. In today's tight labor market when employees are harder to replace, Hamilton says forced ranking makes less sense.

Employers might consider looking for more or different performance measurements if recommendations driven by the data often vary greatly from managers' firm preferences. One example Whitlock cites is when data strongly favors hiring candidate A but you prefer lower-scoring candidate B.

“If you're still telling me hands-down that candidate B is the right one, then we're missing some data," she says.

Potential Drawbacks to Data-Based Evaluations

Sometimes even if a business chooses the right data, the data itself may be flawed—and that can undercut the role of data in an organization.

One example, Whitlock says, is rater skew. This happens when managers give overly high ratings to everyone on their team in order to make the managers look good.

“The reality is that there's some conflict of interest there," Whitlock says.

She will sometimes attempt to overcome this conflict by asking managers to rank employees from best to worst. This is a case when forced ranking can be useful.

If what drives desired performance isn't understood, a business may measure something that leads to worse performance. This is sometimes called the cobra effect. It is named for what happened when Indian officials tried to reduce the poisonous snake population by paying a bounty for cobra skins.

Increasing bounty payments told administrators the program was working. Actually, however, people were breeding and skinning cobras for the bounty. When the bounty was canceled, breeders released their now-valueless snakes. That made the cobra problem worse, despite measurements indicating success.

In addition to picking the right measurements and making sure they are accurately measured, data-savvy business owners seek to explain to employees why a particular measure is being used, Whitlock says.

“Translate to the employee that this matters, this is how it influences the P&L," she says. “Otherwise it can be a distraction."

Finally, employers may want to give employees ways to measure their employer. Online employer review sites are widely used by job candidates to evaluate employers, Hamilton says. Employers can't remove bad reviews and should be cautious about requiring anyone to post positive reviews, she says.

“But if there are employees that are happy, they could go on and put some honest feedback on there," she says.

Performance data is only part of employee evaluation. But the role of data in an organization is increasingly expanding, Whitlock says, as technology makes more data available and business owners get wise to its value.

“You only do yourself a disservice if you choose not to have that be a tool in your organization," she says.